Retirement is the most expensive financial goal most people ever have. It takes decades to achieve, even with an above-average income. So it makes sense that most people plan to remain in the workforce at least until their mid 60s.
But sometimes life has other plans. Roughly half of seniors actually retire at 61 or earlier, according to The Motley Fool's research on average retirement savings. And while that might seem like a good thing, it's actually a stressful experience for many.
Here's why -- and how you can avoid these challenges yourself.
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You can't always wait until you're ready to retire
We think of retirement as a choice, but it's not always. Sometimes, your job disappears and you may have difficulty finding a new one. Maybe your health declines and you're not able to work anymore. Or you have a close family member who develops a medical condition and requires round-the-clock care. All of these things can force you out of the workforce whether you're ready or not.
If this happens to you and you have little personal savings, your quality of life could decline sharply. You could face additional problems if you're not yet eligible for government benefits like Social Security or Medicare. The government may also assess penalties if you try to withdraw money from your retirement accounts before you're 59 1/2 years old.
It's a difficult spot to be in, and it's not a risk you can avoid entirely, no matter how hard you try. But you may be able to work up a contingency plan to help you out if you find yourself forced to quit the workforce sooner than expected.
Why you should plan to retire early, even if you don't want to
Planning as though you'll retire early can lessen the shock if you actually do have to retire due to health, caregiving, or job loss issues.
One of the most important steps you can take is to save as much as possible for retirement while you're young. It's tempting to delay retirement savings, especially if you have little cash to spare now. But the longer you wait, the more difficult the task of saving enough becomes. Even if you can only spare a few dollars per month right now, it's worth setting this aside in a retirement account.
Prioritizing your health at every stage is also important. This may reduce your risk of early retirement due to health issues. It could also help you save money on healthcare costs in retirement.
If you're worried about potentially losing your job and being unable to find a new one, it's crucial to keep your professional skills up to date as well. Consider pursuing additional certifications or training to make yourself a stronger candidate. You may also want to explore part-time or remote job options you can fall back on if your primary career doesn't work out like you planned.
As for not having access to government benefits, like Social Security and Medicare, there's not much you can do about this other than to prepare. You'll need to cover your expenses on your own until you're eligible for Social Security. And you'll need another form of health insurance until you're 65. Medicaid could be an option for low-income households.
There are ways around the 10% early withdrawal penalty on retirement account distributions under 59 1/2. You can take Roth IRA contributions out tax- and penalty-free at any age, though this doesn't apply to earnings. You can also use the Rule of 55 to tap your 401(k) funds early if you leave your job in the year you turn 55 or later (50 for certain public safety workers). And then there are substantially equal periodic payments (SEPPs).
Ultimately, though, you can plan as much as you'd like, but nothing quite prepares you for a forced early retirement. If this happens to you, it's important to take stock of where you are and review your game plan. Adjust it as necessary and check in with yourself often, especially over the first couple of years as you get used to this new normal.
